PPG Industries (PPG) Earnings Report: Q2 2015 Conference ...s.t.st/media/xtranscript/2015/Q3/13222204.pdf · PPG Industries (PPG) Earnings Report: Q2 2015 Conference Call Transcript

CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals

EventDescription:Q22015EarningsCallMarketCapasofEventDate:31.80BPriceasofEventDate:111.82

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

PPGIndustries(PPG)EarningsReport:Q22015ConferenceCallTranscriptThefollowingPPGIndustriesconferencecalltookplaceonJuly16,2015,02:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

VinceMorales;PPGIndustries,Inc.;VP-IR,TreasurerChuckBunch;PPGIndustries,Inc.;Chairman,CEOMichaelMcGarry;PPGIndustries,Inc.;President,COOFrankSklarsky;PPGIndustries,Inc.;EVPFinance,CFO

OtherPart icipants

DavidBegleiter;DeutscheBank;AnalystFrankMitsch;WellsFargoSecurities;AnalystBobKoort;GoldmanSachs;AnalystMehulDalia;RobertW.BairdandCompany;AnalystP.J.Juvekar;Citigroup;AnalystArunViswanathan;RBCCapitalMarkets;AnalystNilsWallin;CLSAAmericas;AnalystJeffZekauskas;JPMorgan;AnalystJohnRoberts;UBS;AnalystJamesSheehan;SunTrustRobinsonHumphrey;AnalystVincentAndrews;MorganStanley;AnalystDonCarson;SusquehannaFinancialGroup;AnalystEugeneFedotoff;KeyBancCapitalMarkets;AnalystChristopherPerrella;BloombergLP;AnalystRobertReitzes;BroadArchCapital;AnalystDmitrySilversteyn;LongbowResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodday,ladiesandgentlemen,andwelcometotheQ22015PPGIndustriesearningsconferencecall.Mynameis[Chris],andIwillbeyourconferencemoderatorfortoday.(OperatorInstructions)

Asareminder,thisconferenceisbeingrecordedforreplaypurposes.

AtthistimeIwouldnowliketoturntheconferenceovertoyourhostfortoday,Mr.VinceMorales.Sir,youmayproceed.

VinceMorales (VP-IR,Treasurer):

Thankyou,Chrisandgoodafternoon,everyone.AgainthisisVinceMorales,PPG'sVicePresidentofInvestorRelations,Treasurer.AppreciateyourcontinuedinterestinPPGIndustries,welcomingyoutooursecond-quarter2015financialresultsteleconference.




JoiningmeonthecallfromPPGtodayisChuckBunch,ChairmanandChiefExecutiveOfficer;MichaelMcGarry,PresidentandChiefOperatingOfficer;FrankSklarsky,ExecutiveVicePresident,ChiefFinancialOfficer.OurcommentsrelatedtofinancialinformationreleasedThursday,July16,2015.

IwillremindeveryonethatwepostdetailedcommentaryandrelatingpresentationslidesontheInvestorCenterofourwebsiteatwww.PPG.com.TheseslidesarealsoavailableonthewebcastsiteforthiscallandprovidesupplementalsupporttotheopeningcommentsChuckwillmakeshortly.FollowingChuck'sperspectiveontheCompany'sresultsforthequarter,wewillmovetoanextendedQ&Asession.

Boththepreparedcommentaryanddiscussionduringthiscallmaycontainforward-lookingstatementsreflectingtheCompany'scurrentviewoffutureeventsandtheirpotentialeffectonPPG'soperatingandfinancialperformance.Thesestatementsinvolveuncertaintiesandriskswhichmaycauseactualresultstodiffer.TheCompanyisundernoobligationtoprovidesubsequentupdatestotheseforward-lookingstatements.

Today'spresentationalsocontainscertainnon-GAAPfinancialmeasures.TheCompanyhasprovidedintheappendixmaterialsfromthepresentation--whichare,again,availableonourwebsite--reconciliationsofthesenon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPfinancialmeasures.ForadditionalinformationpleaserefertoPPG'sfilingswiththeSEC.

NowletmeintroducePPG'sChairmanandCEO,ChuckBunch.

ChuckBunch (Chairman,CEO):

Thankyou,Vince;andgoodafternoon,everyone.IwanttothankyouforyourcontinuedinterestinPPG.

Todaywereportedrecordsecond-quarter2015financialresults.Thisincludedrecordsecond-quarternetsalesof$4.1billion,anall-timerecordadjustedearningsperdilutedsharefromcontinuingoperationsof$1.67.Ouradjustedearningspershareinthesecondquarterwereup$0.25or18%versustheprior-yearrecord.

YeartodateourcompoundedadjustedEPSisup20%overprioryear,whichisontopofourcompoundedEPSgrowthratethepastthreeyearsofabout25%.Thisconsistentandcontinuedperformancereflectsthebenefitsofourportfoliotransformation,thetangiblecustomerbenefitsfromourleadingproductsandtechnologies,ourcontinueddiligenceonaggressivecost-structuremanagement,andthemeasurablebenefitsfromourongoingcashdeployment.Overall,Iampleasedwithourconsistentlystrongfinancialperformanceaswecontinuetomanagethroughinconsistenteconomicconditionsinthemajorglobalregionsandinthevariousend-usemarketswesupply.

InthesecondquarterouraggregateCompanysalesvolumesgrew1%year-over-year,similartothefirstquarter,reflectingmodestglobaleconomicgrowth.Regionally,incomparisonwithlastquarterourgrowthratesimprovedinEuropeandtheUS,moderatedinAsia,andremainedunfavorableinSouthAmerica.

Fromasegmentperspectiveweachievedall-time-recordsegmentincomeinbothCoatingssegments,andourGlasssegmentdeliveredthelargestyear-over-yearearningsimprovement.

Thisrecordbusinessperformancewasdespitesignificantcurrencytranslationimpactstosalesandearningsstemmingfromweakenedforeigncurrencies.Thesecurrencies,principallytheeuroaswellasothersintheAmericasandinemergingregions,unfavorablyimpactedoursalesbyabout$320millionormorethan7%,andreducedourpretaxearningsby$40millionorabout$0.11pershare.

Absenttheforeigncurrencyimpacts,ouradjustedEPSwouldhavebeenup25%year-over-year.Basedoncurrentforeigncurrencyexchangerates,weexpecttheunfavorableforeigncurrencytranslation




impactstomoderatebeginninginthethirdquarter,asforeigncurrenciesbegintoweakeninthesecondhalfof2014andduetotheseasonalityofourbusinesses.

Giventhesefactorswenowexpectcurrencytranslationtoreduceourfull-yearsalesby$1billionandpretaxearningsby$100million.Theserangesareslightlymorefavorablethanourpriorforecast,asweloweredtheprojectedunfavorablecurrencytranslationimpactonsalesbyabout$100millionandonpretaxearningsbyabout$10million.

ContributingtoourrecordCoatingssegmentincomeinthequarterwasvolumegrowthinseveralofourbusinesses,includingautomotiveOEM,packaging,andautomotiverefinishcoatings.Wegrewatoraboveindustrygrowthratesinthesebusinesses,drivenbycustomeradoptionofourleadingtechnologies.

Inaddition,wehavemaintainedouraggressiveoperationalandcostfocus,asweachievedlowermanufacturingandSG&Acostsyear-over-year.Tothatend,weinitiatedanadditionalproactiverestructuringplantargetingfurthersystem-wideproductivityandcost-reductionactions.Weanticipatefull-yearsavingsfromthisprogramof$100millionto$105millionwhenfullyimplementedin2017,with$15millionto$20millionofthesesavingsexpectedin2015.

Cashdeploymentwasalsoasignificantdriverofsegmentincomegrowthinthesecondquarter.ThisincludessalesandearningsfromourrecentacquisitionsofComexandseveralsmallercompanies.

LetmecommentquicklyonComex.Weremainveryexcitedaboutthisacquisition.

Theperformanceoftheacquiredbusinessoverthefirsteightmonthshasbeenexcellent.Thebusiness'ssalesgreworganicallybyahighsingle-digitpercentageinthequarterversustheprioryearpre-acquisitionquarter;andweremainontrackforfull-yearhighsingle-digitpercentageorganicsalesgrowth.

DuringthequarterweincreasedourinitialComexcostsynergytargetsandnowexpecttoachieve$45millionto$50millioninannualrun-ratesavingsbytheendof2016.

Inaddition,weannouncednewacquisition-relatedrevenuesynergytargets,whichincludecapitalizingontheextensiveComexMexicandistributionplatformforlegacyPPGIndustrialandPerformanceCoatingsproductsandfurtherleveragingtheComexandPPGparticipationinCentralAmerica.Simplystated,bothstrategicallyandcommerciallyComexremainswellaheadofouroriginalexpectations.

Wealsoannouncedorclosedseveralotheracquisitionsduringthequarter.Inadditiontoacquisitionspendingwedeployed$150millionofcashinthequarterfortherepurchaseof1.3millionsharesofPPGstock.

Weremaincommittedtoandontrackwithourpreviouslyannouncedearnings-accretivecashdeploymenttargets.Yeartodatewehaveclosedorannouncedbusinessacquisitionswithanaggregatepurchasepriceofabout$400million,andwerepurchased$350millionofPPGstock.

Lookingahead,weanticipateglobaleconomicgrowthtocontinuebuttoremainuneven.Weareworkingtocontinuetocapitalizeonthemodestgrowth,aidedbyourglobalfootprintandparticipationacrosseachofthemajorCoatingsproductcategories.

Additionally,weanticipateincreasedfinancialbenefitsfromalowercoststructureandhigherearningsleverageonincrementalvolumegrowth.

Insummary,weonceagaindeliveredrecordfinancialperformanceinthequarter.Thisperformancewasbroad-basedacrosssegmentsandregionsascustomerscontinuetoadoptourleadingproducts;andour




strategyexecutionandcashdeploymentareyieldingbenefits.

Weremainfocusedonoperationalexecutionandaggressiveoncostmanagement.Finally,weexpectdisciplinedearnings-accretivecashdeploymenttocontinue.

Thisconcludesourpreparedremarks.Onceagain,weappreciateyourinterestinPPG.Andnow,operator,wouldyoupleaseopenthelineforquestions?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

DavidBegleiter,DeutscheBank.

DavidBegleiter (Analyst-DeutscheBank):

Chuck,justonthegrossmargininthequarter,canyoutalkabouttheyear-over-yeargrowthmaybe?Ihadalittlebithigherassumption;Iknowalotofthingsgointoit.

Buttalkaboutthebenefitsyouseefromrawmaterials.AndshouldweseeabiggergrossmarginexpansioninQ3versusQ2?


Well,aswestated,David,volumegrowthhasstillbeenmuted.Wearestillseeingpositivegrowthacrosstheregionsandbusinesses;butaswe'vetalkedabout,wehavesomeunevenperformanceacrossbothregionsandbusinesses.Sovolumegrowthhasnotbeenashighasafulleconomicexpansionwoulddeliver.

Rawmaterialcosts,aswe'vestated,aremodestlylowerthanthepreviousyear.Sowearetalkingaboutlowtomidsingle-digitdecreasesdependingonregions.

Andcombinedwithothercostinflationandmodestvolumegrowth,weareseeingaccretioninmarginsacrossalloursegments.Sowe'repleasedwiththeperformance,butagainwe'relookingforalittlemoreconsistenteconomicperformanceandcurrencystabilizationtodeliverhighervolumegrowthaswegothroughtheyear.


Understood.Chuck,there'sbeensomediscussionoverChinaautodeclinerates,thatmarketslowing.DiscussyourexposurebothinChinaaswellasviaexportstotheChinaautoOEMcoatingsmarket.


Well,Chinaremains--it'sthelargestautomotiveOEMmarketintheworld.Buildsarestillexpectedtobeover20millionthisyearandhavegrowth.We'veseen--overcertainlythefirstquarterweweretalkingabout7%-pluskindofgrowthratesforthefullyear,andwesawthatinthefirstquarter.

Wesawthosegrowthratesmoderatealittlebithereaswewentthroughthesecondquarter.Sonowaswelookatsomeoftheforecastsforthefullyear,wearestilllookingforsolidvolumegrowthinbuildsinChina,butmoreintheareaof3%to5%,maybe--notatthat7%levelthatwecameintotheyearwith.

We'vecontinued,asyouknow,tooutperformintermsofvolumegrowth,andwe'restilloptimisticgloballyontheautomotiveOEMmarket.We'veseenverysolidperformancehereinNorthAmerica,continued




strength.

Andwearealsoseeing,especiallyinWesternEuropeaspartofourEMEAregion,we'veseenareturntogrowthhereinthefirsthalf.Andweexpectthattrendtocontinueinthesecondhalfofthisyear.

SoweremainoptimisticaboutandquitepositiveontheglobalOEMautomotivemarket,evenifwehavepocketsouttherelikeBrazilorRussiawherewe'veseenlowerbuildsherein2015.


Thankyouverymuch.

Operator :

FrankMitsch,WellsFargoSecurities.

FrankMitsch (Analyst-WellsFargoSecurities):

Goodafternoon,gentlemen;andIguesscongratulationsareinorder.Congratulations,Michael,onthemoveup;andcongratulationsChuckonthependingretirement.Obviouslyahellofarun,ahellofadecaderunasCEO.Andofcourse,Vince,congratulationsonyourrecentpromotion.

AndFrank,congratulationsontheseresults.IthinkIprettymuchcoveredeverythingthere.

OneofthethingsinlookingthroughthereleasethatIdidn'tseewasanymentionofweatherimpactsonyourNorthAmericanarchitecturalcoatingsbusiness.Didyounoticeanymaterialimpactduetotheabove-normalwetweather?AndwhatimpactmaythathavecomeQ3,Q4?

MichaelMcGarry(President,COO):

Frank,thisisMichael.Firstofall,appreciateit.Second,Chuckisnotgoinganywhere,sodon'tbesoquickaboutthatcomment.

Iwouldtellyouthatoveralltheperformanceinarchitectural,yousawourcommentsaboutlowsingledigits.Wedohavesomeimpactfromweather.Itwouldbehighlyspeculativeforustotryandtellyouhowmuchthatwas.

Wewerepleased:ourDIYbusinessdidhaveagoodquarter.AndIwouldtellyouthatatthispointhopefullythingsfromaweatherstandpointwillgetbetter.

Butwedorunaglobalarchitecturalbusiness,andItellourteamwehave--whereyoumighthavechallengesinoneareayouprobablyhaveopportunitiesintheothers.SoallinallIampleased.


Allright,terrific.That'shelpful.AlsostayingwiththeNorthAmerica,youmentionedpackagingwasafastgrower;autoOEMwasamongthefastergrowers.

Butautorefinishwasalsomentionedasgettingstronggrowth.Canyoutalkalittlebitmoreaboutwhatyouareseeingthere?What'sdrivingthatandwheredowegofromhere?


Frank,I'lltakethat.Ithinkoneofthekeyindicatorsforgrowthintheautomotiverefinishbusinessismilesdriven.Sowehad--Ithinkwiththeselowergasolinepriceshereandaroundtheworld,especiallyinNorthAmerica,youaregettinghighermilesdrivenandthatishelpingthisbusiness.




Wealsohadsomeofthisweatherthat--ifwetalkaboutinthefirstquarterwehadaseverewinter,thesecondquartersomeofthisrainyweather,itdoes--itwilldriveadditionaleconomicgrowth.Andourbusinesshascontinuedtoperformverywellacrossallofthedifferentdistributionchannelsandcollisionshops.

Ourteam,especiallywiththewater-basedtechnologiesandthosecontinuingconversionrateswherewefeelthatwehaveindustry-leadingtechnology,that'scontinuedtodriveourgrowthinthebusinessandhelpusmaintainaleadingposition.


That'sveryhelpful.Thankssomuch.

Operator :

BobKoort,GoldmanSachs.

BobKoort (Analyst-GoldmanSachs):

Thankyouandmycongratulationsaswell.Chuck,Iwantedtoaskalittle(technicaldifficulty)youhaveachartintherethatVinceandteamputtogethershowingthevolumechangessequentially(technicaldifficulty)LatinAmerican(technicaldifficulty)pieceinparticularisreallyquitejarring.

Doyouthinkthisisaone-offissue?Arethereparticularend-marketsthatmaybewentintothestinkerhere?Andwhat'stheoutlookasyoulookforwardforvolumeinthoseemergingmarkets?


Well,wehave,Iwouldsayinthischart--ifyoulookatthedecelerationofsomeofthegrowth,Imentionedacoupleofthemarketsthatwereunfavorable.AllofSouthAmericaincludingBrazilwasunfavorableintermsofvolume.

Youhadseveralotheremergingmarkets,andIgavetheexampleofRussiaasanexample,wherewesawacontractionhereinthefirsthalfoftheyear.IwouldsaythatourvolumesinChinainIndiacontinuetobepositive,althoughwehaveseen--withthisdiscussiononautomotiveOEMandafewoftheotherindustrialmarkets,we'veseenpositivevolumesinChinabutcertainlynotatthelevelthatwehadlastyear.

SoIwouldattributethismoretothenegativegrowthinacoupleofemergingregions.ButChinawasalsoloweroverall,especiallyontheindustrialandconstructionrelatedside.


Youhadmentionedsomechangesinrawmaterials.Iwaswonderingifyoucouldtalkaboutwhat'sgoneoninpricing.Arethereanyextremesinyourpricing,orisgenerallyflatprettyaccurateacrosstheentireportfolio?


Thisispricingoftherawmaterialswebuy,orthepricingonourend-usemarkets?


Yes,IguessI'mmorecuriousaboutyourbig,tough,meanprocurementguysonthecustomersideseeingwhat'shappenedindeflationandmaybeaskingfortheirpoundofflesh.





Oh,wellaswe'vetalkedwearetryingtomakesurethatwearegettingthebenefitofanyrawmaterialdeclineshereinourCoatingsrawmaterialspace.

AsImentioned,costsoverallhavecomedowninrawmaterialcosts;andwecontinuetohavethesedialogues,becauseaswewentthroughthesecondquarterwhatwashappeningiswehadoilpricescomingbackupaswestartedthesecondquarterandmovedthrough,butrecentlyoverthelastfewweekstoamonthwe'veseennowthosetrendsreversing.

Sowecontinueinactivediscussionswithourrawmaterialsuppliers.Weexpectthemtosharethatthroughouttheirvalueorcustomerchain.Sowearelookingforbenefitstocontinueandpotentiallygetalittlestrongeraswegointothesecondhalfoftheyear.

FrankSklarsky(EVPFinance,CFO):

AndBob,onoursellingpricestoourcustomers,asyousawinthepresentationmaterialswe'vehadflatsellingprices,whichwasourbasecasecomingintotheyear.Therewasn'tmuchonthewayeithersideofthatforanybigcustomergrouporanybigbusinessdifferential.Soflatpricingiswhatwepredictedandthat'sprettyholisticthroughourportfolio.


Thanksverymuch.

Operator :

GanshamPanjabi,RobertW.Baird.

MehulDalia(Analyst-RobertW.BairdandCompany):

Goodafternoon.It'sactuallyMehulDaliasittinginforGansham.

Inpackagingwouldyousaygrowthmomentumhasacceleratedforyou?Anddoyouhaveanycustomerfeedbackthatyoucanshareonyournon-BPAofferingasitrelatestoEurope?


ThisisMichael.Ourpackagingbusinesscontinuestoaccelerate,withwinsbothintheUSaswellasEurope.Andit'sbeingdrivenbyournewtechnologies,soourBPA-freetechnologies.Thecustomersarequitepleasedwiththenewtechnologyaswerollitout.


Great.Thanks.WhatdoyouestimatethemarketgrowthwasinMexicoyeartodate?AndcanyousplityourComexsalesgrowthbetweencomparablestoresversusmaybenewstoresbyconcessionairesyeartodate?


Sure,letmejusttackleMexico.TheGDPandMexicohasdeclinedmoderately.It'sclosetothe2%rangeversuswheretheyoriginallyhaditcloserto3%.

Ourbusiness,asyousawinthecommentary,growinghighsingledigits.We'veopenedup80newconcessionairelocationsalreadythroughthefirstsixmonths;wehaveatargettoopenup170locations.




Sowearecertainlygrowingquickerthanthemarket.We'vealsolaunchedsomenewproductsthatwethinkwillalsobeveryfavorablyreceivedinthemarketplace.

TheninCentralAmericawe'velaunchedGliddeninanumberoflocationsinCentralAmericathathavealsobeenfavorablyreceived.Sowe'rehappywithwhatweseethere.


Great.Justonelastone.Inthereleaseyoucalledoutearly2QweaknessinIndustrialCoatings.Whatdoyouthinkwasbehindthat?AndhowarevolumesinIndustrialCoatingsasawholetrendingin3Qthusfar?


ThebiggestchallengeinIndustrialistheheavy-dutyequipmentmarket.Ithinkwecalledoutthatit'sdownlowdoubledigits,sothat'sachallenge.

Iwouldsaytherestofthebusinessisdoingrelativelywell.Butthat'sanareathatwearepayingcloseattentionto.


Thankyou.

Operator :

P.J.Juvekar,Citi.

P.J.Juvekar (Analyst-Citigroup):

AquestiononyourLowe'sbusiness.AsHGTVpaintwasintroducedbySherwin,hasthathadanimpactonyoursalesatLowe's?


P.J.,asyouknowit'sdifficultforustocommentaboutaspecificcustomerlikethat.Wedidcalloutthatwehadpositivelowsingle-digitcompsintheDIYsegment.WehaveverystrongrelationshipswithallourDIYcustomers,andIwouldsaytherewerenosurprisesinthesecondquarter.


Okay.Thankyou.ThenHenanBillionsisproducingchlorideTiO2that'sbasedonyourtechnology;butIguesstherearesomereportsthatpeoplearesayingthatmaybethattechnologyisnotworkingaswellaspeoplethought,andtheplantisnotrunningatfullrates.Iwasjustwonderingifyoucouldgiveussomecoloronthat.


ThisisMichaelagain.I'mnotsurewherethatisoriginating.Iwilljusttellyouwhatweknow.

Theplantismechanicallycomplete.Allphasesoftheplanthavebeenoperational.Wehavesamplesfromtheplant,andbothinChinaaswellisintheUSwearefullyworkingwiththem.

Wethinktheplantwillbeproducingregularcommercial-gradesometimelateinthesecondhalfoftheyear.AndIwouldtellyouweareontargetwitheverythingwe'veprojectedsofar.





Thankyou,Michael.

Operator :

ArunViswanathan.

ArunViswanathan (Analyst-RBCCapitalMarkets):

Thanksandcongratstoallofyouaswell.Iwantedto,Iguess,delveintotheNorthAmericanarchitecturalbusinessalittlebitmore.

Youcitedlowsingledigits,butweaknessinthedealerchannel.Sowasyourstoresbusinessupmidsingledigits?Andwasit--areyoustartingtoseesomebenefitsoftheoverhaulandrestructuringoverthelastcoupleyearsandpotentiallysomesharegains?


Arun,Iwouldtellyouthatourstoreswereinthelowsingledigits.Thedealersinthefirstquarterwereupandinthesecondquarterwereslightlydown;sothroughthefirstsixmonthsthedealersareactuallypositive.

WearedoingslightlybetterthanthatinCanada.Iwouldjustsaythatwecertainlydon'twanttospendalotoftimetalkingabouttheweather,butitcertainlywasnothelpfulatall.


Arun,thedealerchannelisoursmallestchannel,soonanaveragingaffectithasthesmallestimpactonthetotalbusiness.


Okay,thanks.Whataboutthesharegains?Anythoughtsonifthatcouldcontinue,orifyousawanyofthat?

Orhowdoyoulookatthecontractorchannel?Areyouguysgettinganyupliftthere?


Idon'tthinkthere'sbeenanymeaningfulsharechangeinthatregard.


Okay.Thenfinalfollow-up,IguessinEuropeyouhadsomecommentsthatyoudidseesomeslightlybettersequentialimprovementinarchitectural.Maybeyoucanjusthelpusunderstandwhat'sgoingonthere,andthenalsoinyourIndustrialbusinessesinEurope.


Startingwitharchitectural,Franceisourlargestmarket,soourretailbusinessinFrancehasnowpositivecomps;however,ourlargertradebusinesshasnegativecomps,butmuchless,soit'sgettingbackalmostnearflatnow.

StrongperformanceintheUKandIreland.AndalthoughtheBeneluxwasflatinQ2,wedidseeanoticeablepickupstartinginlateMay,soIwouldsaythat'sgood.CentralEuropewasalso--hadsolid




growth.

AsfarastheIndustrialbusinesses,we'vealreadytalkedaboutautomotivedoingbetterthanthebuilds.Sothatwasapositivecompforus.


AnythingelseongeneralindustrialinEurope?


Generalindustrial,Iwouldcallthatrelativelyflat.NosignificantpositivesornegativesthatIwouldcallout.


Okay.Thanks.

Operator :

NilsWallin.

NilsWallin (Analyst-CLSAAmericas):

Younotedstrengthinprotectiveandmarineglobally,butobviouslyalsoyousawsomegainstoointheUS,soit'skindofatwo-partquestion.Sinceyoudidn'tbreakoutitbetweenprotectiveandmarineisitrighttoassumethatit'smainlycomingfromtheprotectiveside?

Andthenthesecondpart--unfortunatelyaweatherquestion--is:howisitdoingsowellinNorthAmerica,giventheweatherimpactthatprobablyhadsomenegativecompsforyou?


Nils,thisisMichaelagain.Ontheprotectiveside,yesthere'smorewinsontheprotectivesidethanthemarineside.ButourChinabusinessdidverywellonthemarineside,sonicewinsthere.

OverallintheUSandCanadagoodstrongwinsontheprotectiveside.AlsoIwouldtellyouwehavelaunchedanumberofnewwhatwecalladvantagedproductsinfireprotection;aswellasyouknowwedidtheHi-TempCoatingsacquisitionearlierthisyear.Thathasalsodrivensomegrowth.We'vebeenabletoleveragethatgloballyaswell.

Sooveralleventhoughtheoilbusinessisdown,net-netweareupinthatsegment.Sowe'repleasedwithhowweareperforminginthatregard.


Nils,theonlythingIwouldaddtothatisinEuropealsoadecentperformance.There'ssomeadditionaldrydockworktakingplaceinsomeoftheportsinEurope,sothathadsomesequentialandyear-over-yearimprovementtoo.


Okay,gotit.Justmore,Iguess,aquestionforFrank.Itsoundslikethisyearyou'vealreadydonearound$750millionorsointhecashdeployment.Doesthatmeanthat$1.5billionto$2.5billion,youarehalfwaythere?Oristhis$1.5billionto$2.5billionyou'retalkingaboutincrementaltothe$750millionyou'vealreadydonesofar?





Westillwanttomaintainthatguidanceof$1.5billionto$2.5billionfor2015and2016combined.Iguesswhatwewouldsayiswe'veclosedorannounced$400millioninacquisitionssofar.There'sstilladditionalpipelinethere,soIanticipatemoreactivityoverthenext18months.

I'vedone$350millionofsharerepurchase.Soasyousay,closed,announced,orrepurchased$750million.

Theguidancewewouldgiveis,theoverallguidanceisstillinplacebutwewouldexpectataminimumtoachieveatleastthatmidpointofthatguidanceforthetwo-yearperiod.

Soweareverycomfortablewithwhereweare.ContinuedgoodpipelineintheM&Aspace,andalsothatsharerepurchasewillcontinuetobeapartofourcapitalcashallocationstrategy.Soweareprettycomfortabletheguidanceandofftoagoodstartonthat.


Sorry,ifImay,isthepipelineleveredorexposedtoanyparticularmarketmorethananyother?


Thereareavarietyofopportunitiesacrosstheregionsandacrossourportfolio,asyoucanseewithsomeofthethingswedid,closedorannouncedsofarthisyear.Thatrunsthegamutbetweenourvariousbusinessesandit'stakenplaceinacoupleofdifferent,regions,sowehaveapipelinethatreallyspanstheglobeandspansthedifferentsegments.


Great.Thanksalot.

Operator :

JeffZekauskas,JPMorgan.

Jef f Zekauskas (Analyst-JPMorgan):

I'msurprisedthatyourgrossmarginsaren'thigherinthatyourcostofgoodssoldisdownabout1%fortheyearinthequarter,andyouwouldthinkthatwithyourrawmaterialsdownlowtomidsingledigitsyouwouldbedoingbetterthanthat.IfyoucompareyourresultstoyourClevelandcompetitor,Ithinktheirgrossmarginexpanded250basispoints.

Evenifyoumakesomeadjustmentsforacquisitionsandyougobackayear,youstillseeamuchlargergrossmarginprogression.Isthattherightwaytolookatit?ArethereadvantagestobeinginNorthAmericaandifyouaremoreglobalyouhavesomeimpediments?Areyousatisfiedwithyourgrossmargin?


Jeff,Iwilltakeastabatthat.AgainIthinkfromourperspectivewearetryingtodrivecontinuousimprovementinallofourfinancialmetrics.Thisyear,unlikemostyears,wehavealotofputsandtakesinournumbers.Wehaveaverylargeacquisition;wehavealotofcurrencydifferencesonbothsalesaswellascostofsales.

Youalludedtosomechangesinrawmaterials.Sowe'vegotalotofputsandtakes.SoIdon'tknowthat--acomparisongetsyear-over-yeargetsreallydifficultwithouteachofthosebuckets.




Wearenotdispleasedwithourperformance.Wecertainlyliketobeasprofitableaspossible,butwedofeelthatweareexecutingverywelloperationallyaswellascommerciallyonthesalesfront.


IthinkifyoulookatthewhatwecallourEBITmargin,(technicaldifficulty)marginasyouknowwereferredtoitforthebusinessoverall,weliketofocusonthatROS,thatbusinessoperatingROS.Andifyoulookatitthatwayweareover150basispointsbetterQ2overQ2.

It'sreallyacombinationofanumberoffactors,whetheritbealltheinputsinthecostofgoodssold,somefavorable,andofcoursewedohavesomeannualmodestimprovementsinsalaryandwagesacrosstheglobe;somegoodmanufacturingproductivityimprovement;G&Aimprovements;somebenefitsfromtheacquisitionsthatwe'vedone;aswellassomecurrencyheadwindsthatVincereferred.

ButoverallwhenyoulookattheoverallROSforthebusiness,aniceimprovement.TherearesomeputsandtakesbetweenCOGSandSG&A,butonbalanceprettypleasedwiththeimprovement.


Thensecondly,lastyearinthefirsthalfyourNorthAmericanbusinesswasmaybeupaorderofmagnitude5%;andthisyearit'sroughlyflat.WhatisitaboutNorthAmericathisyearthatissomuchweakerthanNorthAmericalastyearinthefirsthalf?


Ithink,Jeff,youhave--wecontinuetoimprovewithinautomotiveOEM,butnotatthesameacceleration.Itcontinuestobepositive,sothatisoneofthebusinessescontinuedgrowing,butnotatoverallthe5%level.


Theother,aswetalkedintherelease,Jeff,generalindustrialwasmuchmorebenignthisyearthanitwaslastyear.Andwedid--thisisaQ1[commitment]butwedidhavesomearchitecturalpipelinefillslastyearfornewproductwinslastyearthatwearemaintainingthisyear,butthepipelinefillsorstockingforourcustomersdidnotrecur.


Sodoyouthinkthisisa1%volumeyearforPPG?Ordoyouthinkthatyoucando--arebusinessconditionsimproving,oraretheysteady-state?


Iwouldsaythebusinessesaresteady-state.There'sstillpositiveeconomicgrowthhere.Wehavetalkedaboutsomeoftheweaknessintheoverallmarket,inarchitecturalduetosomeweathereventshereinactuallythefirsthalf,notjusttheraininthesecondquarter,whereasmostoftheunderlyingeconomicindicatorsarestillpositive.

Sowehavemaintainedapositiveoutlookforthesecondhalfoftheyear.AndIthinkyouwillseecontinuedvolumegrowthfromushereintheUSandCanadianregions.


Remembertoothere'soneotherminorfactortoo,andit'sintheGlassbusiness,whichisimpactingthat




1%.It's--thatwesoldourMt.Z ionfacility.Asyoucanseethemixisgreatlyimprovedinthatbusiness;soeventhoughthevolumeandthetoplineislowerinthatbusiness,theprofitabilityisgreatlyimproved.Sothatwasnotahugefactor,butafactorcontributingtothatyear-over-yearchangeinthegrowthrate.


Okay,great.Thankyousomuch.

Operator :

JohnRoberts,UBS.

JohnRoberts (Analyst-UBS):

I'lladdmycongratulationsaswell,Mike;andthankyou,Chuck.Frank,youjustmentionedtheGlassbusiness.Againthevolumewasdownduetotheplantclosing,butitdidn'tseemtobeaffectedmuchbyweather.Giventhat'saUSOEMconstructionbusinessIwould'vethoughtitwouldbeoneofthemostaffectedbusinessesbyweather.


Again,wearerunningatdecentutilizationlevels,soprofitabilitygreatlyimproved.Oneplantcomingoutofthesystem;mixhasimproved--andthat'swithcommercialconstructionstillnotbacktolevelspre-financialcrisis.

Soveryoptimisticaboutthewaythebusinesslooksfortherestoftheyear.Andlookingforward,ifwecangetcontinuedimprovementonthecommercialsidethatbusinessshouldcontinuetoperformwell.(multiplespeakers)


Notassensitive,John,toweatheraspaintis.Youcanstillputupglassininclementweather.


Okay.Allright.Thankyou.Actually,couldyougiveusalittlegranularityontheautoOEMpaintstrength?Either,isitlargelymorenewwins,orisitbettersell-throughofpreviouswins?Oranyregionalcolorthatyoucangiveusontheoutperformancethere?


We'vecontinuedtodowellinourregionshere,andinGreaterEuropeaswellasAsia.Iwouldsaythathereitismoreoverallmarketgrowth,whichhascontinued.

InEurope,especiallyinWesternEurope,you'veseengrowthofwhatwewouldcallsomeofourcustomerbase,especiallyamongabroaderbaseoftheEuropeanmanufacturers,thanwehavebeenseeingoverthelastfewyears.AndwehavegoodexposureacrossallofthemanufacturersinEurope,sowe'reseeingsomeimprovementinsomeofthoseEuropean-basedmanufacturers.

TheFrenchandItalianmanufacturersinparticular,they'vehadabetterperformance.

InChinaIwouldsaytherewecontinuetowinmorethanourshareofnewplantstartupsinChinaespecially.Sothat'swherewe'vecontinuedtooutperformthemarket.

Andthatismoretechnologydriven,thenewcompactprocessesthatwe'vetalkedaboutoverthelastfewyears.TheChinesemarket--boththedomesticmanufacturersandtheglobalmanufacturersinChina--




arestartingnewplantswiththemostmoderntechnologies,uptodate.Andthisiswherewearebestpositioned.


Okay.Thankyou.

Operator :

JamesSheehan,SunTrust,RobertsonandHumphrey.

JamesSheehan (Analyst-SunTrustRobinsonHumphrey):

Thankyouandmycongratstoeveryoneaswell.Iwasjustwonderingabouttheslowdownthat'soccurringinemergingmarkets.Doyouexpectthistoimpactgrowthinaerospaceinthenearandmedium[sterm]?


James,thisisMichael.Idon'tthinkthat'sgoingtohaveamaterialimpact.Certainlythegeneralaviationmarketisn'thelpedbythechallengesinRussiaorChina,twomarketsthatwerestartingtoemergetobuygeneralaviationplanes.

Butoveralltheaviationindustryisdoingquitewell.Infacttheyarereturningtheircostofcapital.Rightnowtheirprofitabilityisup,andpeoplearetraveling.SoIwouldsaythatisnotgoingtobeamaterialimpact.


WealsodidseeadecentgrowthinAsia-Pacificregionaerospaceinthesecondquarter.Inadditiontothat,oneofthethingsthat--continuedtodriveourperformancearesomeofthenewtechnologiesthatwearedeployingouttosomeofthemajoraircraftmanufacturers.


IwouldaddforafinalcommentthatwedohaveanotheracquisitionthatclosedJuly1,CumingMicrowave.It'sabusinessthatdoesclassifieddefenseproductsforradarevadingforbothairplanesaswellaslandvehicles.Thatwillbeacontributortothebusinessinthethirdquarteraswell.


Great.Younotedsomepositiveimpactfromworkingcapitalinthesecondquarter.Canyoujustcommentonwhereyouseeworkingcapitalinthesecondhalf?


Wecontinuetofocusinonacoupleofkeyareas.One,past-duereceivables:wearemakingsomegoodprogressthere.Butmoreimportantlyintheareaofsupplychainefficiencyandinventorieswesawseveraldays'improvementonthePerformanceCoatingsspaceinthefirsthalfandwehavesomeadditionalimprovementsthatwehavetargetedforthebackhalfoftheyear.

SoIthinkit'ssafetoassumethatwewillcontinuetheprogressthatwe'vemadeinthefirsthalfinthebackhalfoftheyearandexpectthattocontinuetoimprove,becausewestillknowthere'salittlebitmoreintermsofnumberofdaysinthecashconversioncyclethatwecanimproveonascomparedtopeergroup.





Jim,we'vehadconsecutiveyearsof100basispointimprovementinouroperatingworkingcapital,andthat'sourtargetagainthisyear.We'vemadesomeimprovementbutwe'renotwherewewanttobebyyear-end.


Great;thankyouverymuch.

Operator :

VincentAndrews,MorganStanley.

VincentAndrews (Analyst-MorganStanley):

Thanksverymuch.Justonequestionforme.WouldyoumindbreakingouttheFXimpacttogrossmarginsinthequarter?


FromanFXperspectivewehad$40millionofnegativeEBITinthequarter,pretaxEBIT.MostofthatisgoingtobeintheCOGSline.There'ssomeoffsetintheG&Alinewithintheregions.Butsincewemakemostoftheproductwherewedeliverit,thevastmajorityofthatimpact,that$40milliontothebottomline,isgoingtobeinCOGS.

VincentAndrews (Analyst-MorganStanley):

Okay,great.Thanksverymuch,guys.

Operator :

DonCarson.

DonCarson (Analyst-SusquehannaFinancialGroup):

JustgoingbacktoFXintheinterplaywithROS,soFXisabout$0.25yeartodate,ifIaddupthefirsttwoquarters.Areyoustillthinkingit'sgoingtoslowdowninthesecondquarterandmaybebe$0.35,$0.40?

AndfromaROSstandpoint,youhadmentionedinfirstquarteryoudidn'tseemuchROSbenefitasyouworkeddownhigh-costinventories.Whatbenefitdidyouseeinthesecondquarter?Andasthatacceleratesinthesecondhalf,whatsortofmultiplewouldyouexpectthattobeoftheFXhit?


SoDon,juststickingwiththecurrencytranslation,wehadourbiggestimpactwebelieveinQ2,formultiplereasons.One,it'sourhighestquarterseasonally,especiallyinarchitecturalEurope;andsecondarily,thecurrencyratesbegantoweakenlastyear--theeurobegantoweakenlastyearandothercurrenciesinQ3.

Soifyouwill,thecompscurrency-wiseareabiteasierinQ3.Seasonalityisthebiggerfactorthere.Sowedoexpectmoderationfromthesecond-quarterlevelinthebackhalfoftheyear.

AndinQ4theeurowasmarkedlydownversusQ3lastyear.Soagain,weakeningeuroandothercurrencieslastyeargiveusreasonformoderationgoingintothebackhalfofthisyear.Frank,Idon'tknowifyouwantedtocommentonthataswell?





That'sundertheassumptionthattheratesstaywheretheywereattheendofQ2.Theyweakenedalittlebitthismorning,basedonsomeofthenewsoutofEurope.Butundertheassumptionthattheystaywheretheyare,weexpectsequentiallyanimprovementbothinQ3andQ4.


AndonyourrawmaterialquestionIthinkChuckmentionedearlierthatwesawsomebenefitinQ1.ThatbenefitexpandedalittlebitinQ2,andweexpectamodestlyimprovedbenefitinQ3andQ4.


Okay.Thenjustafollow-uponacquisitions.What'sbeentheaverage[EBIT]EBITDAthatyou'vebeenpaying?

Andhowhasthatchangedoverthelastyear?Areyouseeingmorecompetitionforthesepropertiesandthushigherpurchasemultiples?


Well,Iwouldsaythatthepurchasemultiplesforourdeals,theydovarydependingongrowthrates,region,performanceofthebusiness.Iwouldsaythatonaveragethisyearwehavenotpaidatthesamelevelaswepaidlastyear,asanexample.

Wedidpay,asyouknow,theannouncedmultipleofaround11forComex,pre-synergiesandthisyearasthesearesmallerdealsinvariousregions.SoIwouldsaythemultiplesarearoundthesameoverthelast18monthsorso.It'sagainsomewhatdependentonwherewefinish--Imeanthetypesofdealsandwhatarethequalityandsizeofthebusiness.


Thankyou.

Operator :

EugeneFedotoff,KeyBancCapitalMarkets.

EugeneFedotof f (Analyst-KeyBancCapitalMarkets):

YourEuropeanvolumeswereup2%year-over-year,andinthepastyoucommentedonincrementalprofitsorincrementalmarginsforEurope,giventhatyoutooksomecostsoutthereinthepastcoupleofyears.Iwaswonderingifyoucanprovidesimilarcolorforthisquarter.


WearestillholdingtothegeneralguidelinethatincrementalsonEuropeanvolumeinthe30%to40%range.That'sreallybecauseofplentyofheadroomintermsofthemanufacturingcapacity,andwithnotonlysteadybutgenerallyreducedSG&Alevelsaswecompleteourrestructuringprogramaroundtheglobe.Sothat30%to40%isstillaprettygoodruleofthumb.


Allright,thanks.Thenjustafollow-upontheProtectiveCoatingsinNorthAmerica.Idon'tknowwhatyourexposureis--likeifit'ssignificant,probablynot--totheIguessoilfieldmarket.OrareyouseeinganydeclineintheservedmarketsduetotheloweroilpricesinNorthAmericaandglobally?





Yes,certainlytheoilmarketissofter;butthebeautyisthatwe'vebeenabletocaptureshareinthatsegment,andthathasbeenapositiveforusoverall.WedoseeoilweaknessinColombia,Mexico,Russia,someotherplacesaswell;butnet-netthishasbeenagoodmarketforus.


Gotit.Justalastfollow-uponComexsalesgrowth,highsingledigitinthequarterandyeartodate.Soitsoundslikeyoushouldbe--oristhattherightexpectation,youshouldbetowardsthehigherendofyourmidtohighsingle-digitsalesgrowthguidance?


I'msorry…


Couldyourepeatthequestion?I'msorry.


Sure.GivenhighsingledigitsandComexsalessofar,Ibelieveyousaidyouexpectedsalestogrowmidtohighsingledigitsfor2015.Sowasitfairtoassumethatit'slikelygoingtobeatthehighendofthatguidance?


Iwouldtellyouthathistoricallywhatwetoldpeoplewewouldgrow1.5to2.0timesGDP.Weareoutperformingthatrightnow.Iamcomfortablethattheteamwillcontinuetoperformattheupperendofthatguidance.


Justasareminderforeverybody,theseasonalityoftheComexbusiness,architecturalComexbusiness,isalittledifferentthantheseasonalityofourUSandCanadianbusinesses.ForuswhatwesaidisComexisabout20%inQ1,25%inQ2/Q3,and30%inQ4intermsoftheirsalesphasing.AndthatagainisdifferentthantheUS/CanadabusinessandWesternEuropeanbusinesswehave.


Thanksalot.

Operator :

(OperatorInstructions)

ChristopherPerrella,Bloomberg.

ChristopherPerrella(Analyst-BloombergLP):

Thankyouandcongratulationstoeveryone.QuickquestionontheChinabusiness.WithAsianvolumesmixedbutup,werethereanyend-marketswhereyousawdecliningvolumesinthequarteroverinAsia?


Couldyourepeatthequestion?Anyofthe--?





WerevolumesdowninanyparticularCoatingend-marketsinAsiainthequarter?


Coatingsend-markets?


Heavy-dutyequipmentinourindustrialbusinesswasdown,aswealludedto.Electronicsagaininourgeneralindustrialbusinesswasflattish.Thosewouldbetwomarketsthatwereontheweakersideofthespectrum.


WhatwaspackagingdemandinAsiaforyouguysinthequarter?Wasitup,inlinewiththemarket,below-marketgrowth?


Everyoneofourbusinesseswasupataminimummidtohighsingledigits.Everyoneofthemthatfeedintopackaging(multiplespeakers)market.


Allright,great.Thankyouverymuch.

Operator :

RobertReitzes,BroadArchCapital.

RobertReitzes (Analyst-BroadArchCapital):

Justtryingtopieceeverythingtogether.Thisis--Iwanttoaskaquestion.ItsoundstomelikeEuropeisgoingtobebetterinthethirdquarter;USshouldbeatleastwhereitisormaybealittlebetter;andAsiawillbebetter,butatalessofagrowthrate.

IsthatwhatIheardyouguyssay?That'sthefirstpartofmyquestion.


Ithinkthat'safaircharacterization,Bob.


Okay.Thesecondpartisthatyoushould--thatcurrencywillnothurtyouasmuchinthethirdandfourthquartersasitdidinthepast;somaybeyougetabletobitofatailwind.Eventhoughcurrencywasstillhard,butyougetmaybealittlebitofatailwindfromcurrencymoderation;isthatfair?


Yes,itwillstillbeaheadwindinabsolutetermsonayear-over-yearbasis,butlesssothanitwasinQ2.SoQ2isthepeakheadwind;Q3lessso;andQ4willbelesssojustbasedonthesequentialyear-over-yearcomparisonsbasedontheeuro.

Ofcoursethatalsodependsonthefactthatcurrenciesstayaboutwheretheywereortheyarenow.Ifit




continuestoweakensignificantly,itwillbemoreofaheadwind.ButwestillthinkthatoverallQ2willbeapeakquarteranditwillimprovesequentiallyafterthat.


Sowhenyoutakealookattheoneotherbusinessthatsabout--anditsoundedtomelikeChuckwasmoreoptimistic--isthatpeoplehavebeenalittlebitmorenervousaboutautosalesinChinaorautobuilds.Itsoundstomeeventhoughyou'relookingforlessgrowth,you'restilllookingfor3%to5%insteadof7%inChinainthebackhalfoftheyear.Isthatalsofair?


Yes.Ithinkforthefullyearwearelookingatamidsingledigits,socertainlydownfrom7%rightnow.3%to5%fortheyearwethinkisgood.We'veseenafewblipsintheChinesemarketoverthelastfewyears,butwethinkitwillstillbepositiveforthisyear.


Okay.Onelastquestion,justputtingthewholethingtogether.Doyouthinkifwhereyouaretodayversuswhereyouwereatthebeginningoftheyear,isEuropewhereyouthoughtitwas,better,orworse?


Justmakingsureweunderstoodthequestion,Bob.YousaidisEurope?


Ifwewouldhave--atthebeginningoftheyearwhenyouarelookingatyourforecastforEurope,orwhatyouthoughtthetoneofbusinesswas,youhadaviewthen.Rightnowisyourviewthatbusinessisbetterthanwhatyouthoughtinthebeginningoftheyear,worse,oraboutasyouthoughtinthebeginningoftheyear?


Well,Iwouldsayonbalanceit'sslightlybetter.ItisbetterinautomotiveOEM,andactuallytherewassomeimprovementinautomotiverefinish.

Theconstructionmarkets,especiallythebigonewehaveinFrance,havereallynotstartedtomove.SoIguessmaybethat'smeetingourexpectationsbutnet-netIwouldsaytheautomotivebusinessisalittlebitbetter.

AndasweseenhereintherecoveryinNorthAmericasincetheGreatRecession,itwasreallyledbytheautomotivebusiness.SonowI'malittlemorepositiveastheyhaveaweakercurrency,loweroilprices,alotofquantitativeeasing.Sowearenet-netmoreoptimisticaboutEurope,butthebusinessesweareseeingthemosttangibleimprovementaretheautomotive.


Okay.Thanksverymuch.

Operator :

DmitrySilversteyn,LongbowResearch.

DmitrySilversteyn (Analyst-LongbowResearch):




Alotofmyquestionshavebeenansweredalready,butIwouldjustliketofollowuponacoupleofpoints,ifImay.Firstofall,gettingbacktotherawmaterialpricingandthediscussionthatyou'veofferedintheanswertothepreviousquestionabout(technicaldifficulty)comingbackandmaybeaskingyoutoshareinsomeofthebountythatyou'reseeingontherawmaterialsside,itdidn'tsoundlikethatwassomethingweshouldexpectinthesecondhalfoftheyear.

Ifweassumethatrawmaterialsstayattheselevelsandoilpricestheyattheselevels,isitlikelythatpressurefromcustomersisgoingtogetmoreintenseintheindustrialmarketsin2016?Ordoyouexpecttooperateinthebenignenvironmentwhereyougettokeepallthebenefityou'verealizedtodateontherawmaterialprices?


WellcertainlyIcanaddthatwedon'tanticipatethatwewillkeepallofthebenefits.Typicallyaswehavediscussed,whetherpriceisonthewayuporonthewaydown,weusuallywaitforaquarterortwoasthesethingssettledownandwefullyrealizeeithertheimpactofrawmaterialsontheupordownside.

Thoseareusuallysharedthroughthevaluechainorsupplychainwithourcustomers.Soweareinregulardialoguenowwiththesuppliersandwiththecustomers,sowedonotexpectthatwewouldkeepallofthebenefitsfromrawmaterialchanges.


Again,Dmitry,ourrawmaterialsaredownmodestly,lowsingledigits.Sojusttobeclearonthatnumber.


Andthereareotherfactorsthatgointoourpricingtoo,likedifferentkindsofvalue-addedformulations,newproductsforourcustomers,aswellasthereareothercostinputsassociatedwithlaborandothernon-laboritems.

SooverallasVincesaidbefore,flattishenvironmentoverallforpricing.Thatwasthecaseinthepreviouscouplequarters;weexpectthatfortherestofthisyearandprobablyintothefirsthalfofnextyear.


Okay;verygood.In(technicaldifficulty)we'regoingtogetitinthe10-Q,butjustformodelingpurposes,canyouupdateusonwhattheCapExspendwasinthequarterorforthesixmonths?


Wehadinourpresentationmaterialstotalfortheyearabout$160millionwithabout$90millioninQ2.


Okay;helpful.Thenjustageneralquestion.Youtalkabouttheincrementalleveragethatyouwillbeabletoobtainafterhaving(technicaldifficulty),particularlyinEuropebutalsoinothergeographiesasyou'veintegratedacquisitionsand(technicaldifficulty)capacityout(technicaldifficulty)rationalizeyourfootprintandsoon.

Iguessmyquestionis(technicaldifficulty)growing(technicaldifficulty)volume.Howdoyouactuallydrivemargininyourbusinessestoahigherlevel?Iunderstandincrementalmargin,butyouneedvolumetogetit.

Soifyouaregrowingat1%to2%isthatgoingtobeenoughforyoutodrivethemargintogenerate




earningsgrowthofmidteens,let'ssay?


Justtomakesure--IwanttomakesureIspokecorrectly.Ourcapspendingyeartodatewas$160million.


$160million,yes,$90millioninthequarter;Igotit.


Ijustwanttomakesureofthat.Iapologizeforinterruptingyou.Iwantedtomakesurethatwasclear.

Butintermsofourdrivingincrementalmarginprofitability,Ithinkwecontinuetolookforwaystobeaggressivewithourcosts.Wecontinuetoidentifyopportunitiesasweintegratetheseacquisitions.Andwearetypicallybringinginatlowerthanouroperatingmargin,orEBITmargin.

Andwecontinuetolookforsynergisticopportunitiesacrossourportfolioofbusinessesintermsofsales.Sothoseareall--wedohaveachallengingenvironmentincertainmarkets,butwetypicallylookforotheropportunitiestomakesurewe'remaximizingourprofitabilitywiththingswecontrol.


Andagain,alongwiththeworkingcapitalimprovementtherearealsoeffortsunderwaytoimprovetheefficiencyofthesupplychain.Sothereissupplychainefficiency;there'smanufacturingproductivity;there'sSG&Aimprovementassociatedwiththerestructuringprogram;aswellasthevolumeleveragewegetfromanyincrementalvolume.


Okay.Allright;Igotit.AndthenfinalquestionandIguessthat'srevisitingmaybeaquestionthatwasaskedearlier,butatthebeginningoftheyearyoutalkedaboutascenarioofslowerfirsthalfoftheyearforEuropeanmarkets,andthenapickupinthesecondhalfoftheyearasthebenefitfrom(technicaldifficulty)ofthecurrency(technicaldifficulty)energycostsandthingslikethat.YourEuropeanbusinessinthefirsthalfIthinkdidalittlebitbetterthanthat.

Isyourexpectationforthesecondhalfoftheyearequallybullish,lessbullish?Areyouseeing(technicaldifficulty)pickupin(technicaldifficulty)theeconomy(technicaldifficulty)moreconfidenceanddemand?Orisitalittlebitlessbullish?


Dmitry,you'vebeenbreakingupalittlebitontheconnectionhere.ButIwouldsaywefeelhere--wetalkedmaybewithaquestionfromBobReitzeswetalkedaboutEuropebeingalittlebitbetterthanourexpectations,especiallyinautomotive.HereinNorthAmericawedofeelIthinkaboutthesameintermsofthepositiveoutlooksthatweareseeinginautomotiveandtheconstructionmarkets.

Asweatherheldthatback,wearelookingatmaybesomeinterest-rateincreases,theimpactofthestrongdollar,andtheweaknessintheoilandgassectorhereinNorthAmerica--Ithinkoverallit'sprobablyhelpingusalittleontherawmaterialsside.ButIwouldsayNorthAmericaiscertainlynotexceedingtheexpectationsthatwewentintotheyearwith.Someareasalittlebitbetter.

SoIwouldsayit'sconsistent,butIwouldsaythatwe--andIinparticular--probablyfeltthatloweroilandgasolinepricesweregoingtobemoreofastimulantfortheeconomy.Ithinkwe'veseenalittlebitof




improvementinconsumerconfidence,butIwouldn'tsayfromaretailsaleslevelorotherareasofGDPthatwe'veseenanoutperformanceasaresultofloweroilandgasolineprices.SoIwouldsayit'saboutwherewethoughtitwouldbe.


Gotyou.Thankyouverymuchforthatcolor.

Operator :

Wehavenofurtherquestionsatthistime.IwouldnowliketoturnthecallbackovertoMr.Moralesforanyclosingremarks.


Thankyou,Chris.JustwanttothankeverybodyonceagainfortheirinterestinPPG.We'llbeavailableintheInvestorRelationsdepartmentforanyfurtherfollow-up.Thankyou.

Operator :

Ladiesandgentlemen,thatconcludestoday'sconference.Thankyousomuchforyourparticipation.Youmaynowdisconnect.Haveagreatday.

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